“The talk in a tumultuous 2023 was mostly about the rising cost of debt, while the excitement heading into 2024 is mostly about the tempering of inflation and an expected stabilization, and likely reduction, in borrowing costs. The bigger issue impacting transactions, however, may not be the cost but rather the availability of debt, due mainly to the restrictive bank lending environment. For the first quarter of the year, all attention will focus on the Fed and their willingness to cut rates. Right now, it is projected the Fed policy expectations are one 25bp cut in early fall, and just 40bps of total easing this year, though that projection is increasingly in doubt as the stubbornly persistent inflation figures remain high 90 days into the new year. If they materialize., those cuts would push down indexes and, by extension, borrowing costs, providing a better rate environment for discretionary refinances and the potential for sellers to realize higher values on transactions to levered buyers. The CMBS market will need to become more active as bank lending is expected to remain muted. Banks are likely to see a continuation of the restrictive capital reserve requirements that have forced them to pull back on lending and require borrower deposits, sometimes exceeding 20-30% of the loan amount, in exchange for making a new loan. In 2023, non-agency CMBS issuance was approximately 45% below 2022 levels, but the market is projecting a rebound to historical levels in 2024 as the 10-year Treasury yield continues compressing. Balance Sheet/Life Company lending remains competitive and vibrant in the grocery-anchored and lower-leverage sector as lenders continue to recognize the relative yield opportunity on the best assets in the retail property sector.” - Steve Kundert